Starbucks Price Increase Stirs China’s Netizens

For proof that coffee is taking off in China, look no further than Chinese consumers’ reaction to recent price increases at Starbucks Corp.

The Seattle-based coffee chain said earlier this week that all coffee drink prices would increase by two yuan, or about $0.32. That bumps up the cost of a small latte – or “tall” latte, in Starbucks’s lingo -- to 27 yuan, or $4.20. A large mocha is now 34 yuan, or $5.40. The increases add to prices that are already higher than what similar coffee drinkers pay in the U.S.

Starbucks fans in China turned to the Internet to complain, helping to make the Chinese term for Starbucks, “Xing Ba Ke,” one of the top trending terms on China’s biggest search engine, Baidu.com. They flooded Twitter-like microblogging sites with emoticons of sobbing faces, complaining about what at least one called the “pain.”

“In the past, a larger size cost two more kuai and now it costs three. It’s so painful,” said one user of the Sina Weibo microblogging site, using the Chinese slang term of the yuan, China’s currency. “Where are the price control authorities this time?” a user in Beijing complained, referring to instances last year in which Chinese economic bodies, aiming to prevent unrest due to high inflation, prevented food companies from passing on higher prices to consumers

“We understand this has an impact on our consumers,” said Caren Li, a spokeswoman for Starbucks, adding that the company needs to keep up with China’s rising operational costs, including higher wages for laborers, increasing commodity costs and rising real estate prices.

The public reaction signals the growth of a product that many were skeptical would take off in China, a country with thousands of years of tea culture, said Krista Pederson, a consultant at Shanghai-based WGP Investment Consulting. “What started out as a drink for the few is turning into a mass-market product in China,” Ms. Pederson said.

China’s coffee market, including fresh and instant, is booming. Sales climbed to 6.25 billion yuan in 2011, up 20% from a year earlier and 92% from 2006, according to market research firm Euromonitor International.

To be sure, coffee consumption in China is still tiny compared to other countries. On average, the Chinese consumer drinks three cups of coffee per year, according to data from Swiss food giant Nestle SA.

But the thirst is there and coffee companies have been expanding rapidly to meet the new demand. Starbucks, which now has 550 stores in China, plans to have 1,500 by 2015. Nestle is rolling out more upscale Nespresso stores and in select markets it has recently launched an ad campaign, featuring popular blogger Han Han, to hype up its instant coffee products sold in grocery stores.

Many have been willing to pay the price because coffee has been positioned as an upscale in China. “To carry around a Starbucks cup or to meet in a Costa Coffee is to mark yourself as having status,” said Ms. Pederson. Costa is a coffee chain owned by U.K.-based Whitbread PLC.

Most of the stores charge their Chinese consumers around 50% to 75% more for a cup of coffee than the average U.S consumer would pay in the U.S. A small cup at Starbucks in Beijing is now $3. Customers in smaller cities pay around 30 cents less, Ms. Li said.

But now that coffee is becoming a daily drink for many, the price increases come as a blow, consumers say.

“The prices are overwhelming! The kingdom’s people are now under such great pressure!!,” a Beijing-based Weibo user named YiziluoDevil wrote.

Starbucks doesn’t break out its performance in China. In China and Asia Pacific it said revenue for the quarter end Jan. 1 grew 38% to $166.9 million, while operating income grew 26% to $57.8 million.